Evidencing ownership of shares in an unlisted Australian company

A mature man and woman are sitting at a desk in an office. They are looking at and discussing a document that is in front of them on the desk.

In 2023, the Australian Financial Review reported on the downfall of former young rich lister Robert Bates' empire, which includes the brands Aquamamma and Aurum+. The article highlighted that investors, some of whom had reportedly committed amounts exceeding $1 million to the companies, and received share certificates in return, had allegedly not been validly issued shares in the companies. Investors are now in a difficult position as they attempt to recover the funds they have invested.

This situation raises some important questions about how investors are able to verify share ownership in an unlisted Australian company.

Understanding evidence of title

In practice, many people often mistakenly believe that the records held on the register of the Australian Securities and Investments Commission (ASIC) constitute definitive evidence of who owns shares in a company. However, under Australian law, it is the register of members of a company that actually establishes who has legal title to shares in a company.

To clarify this common confusion, it is important to understand some of the key considerations that apply with respect to the issue or transfer of shares in an unlisted Australian company.

ASIC records

Part of ASIC's role is to promote transparency and publish key information about companies. The information that ASIC publishes in respect of a company is primarily based on information that has been provided to it by the company. Notifying ASIC of changes to a company's share capital is not the actual mechanism by which a company issues new shares or registers a share transfer.

When a change is made to a company's share structure, the company has 28 days in which to notify ASIC of the change (otherwise fines apply). ASIC will then, in turn, update its records in respect of the company. Therefore, not only are ASIC's records based on the information that a company provides to them, but its records may not always be up to date due to the 28-day notice period.

Share certificates

A share certificate is a document issued by a company that is designed to confirm the number and class of shares that have been issued or transferred to an investor. Share certificates are effectively a "receipt" for the shares an investor owns in a company.

Whilst share certificates do serve as evidence of the ownership of shares by an investor, the Corporations Act 2001 (Cth) (Corporations Act) makes it clear that it is only prima facie evidence (i.e. correct unless proved otherwise).

Register of members

The Corporations Act specifically provides that a person is a member of a company if their name is entered on the company's register of members. It is only after a person has been registered on the members register of a company that a share certificate should be issued and a notification sent to ASIC to update its records in respect of the company.

As a result, it is essential for an investor to obtain confirmation from the company that the members register accurately sets out the number and class of shares that the investor has acquired.

Board resolution

As part of the process of issuing share certificates and updating the members register, the board of the company should approve the relevant issue or transfer of shares and authorise the updating of the members register, the issue and signing of the relevant share certificate and the necessary ASIC notification.

Best approach

For the reasons noted above, a person should not rely on ASIC's records in making conclusions about a company's capital structure and the shares they own in a company. It is only a public record and does not establish ownership of a share.

When acquiring shares in an unlisted Australian company (whether by way of an issue or transfer of shares), investors should request evidence of their name and shareholding being properly entered in the members register of the relevant company and also carefully check the share certificate issued to them to ensure that all the information in it is correct. If there is any discrepancy, they should ensure that the register and/or share certificate are rectified immediately.

Following these steps will help to provide certainty for investors and reduce the risk of situations like those currently being experienced by the investors noted above arising.

For more information about the procedures that need to be followed by a company when issuing or registering share transfers, please contact Lander & Rogers' Corporate legal team.

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